BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 804
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          Date of Hearing:  June 12, 2012

                            ASSEMBLY COMMITTEE ON HEALTH
                              William W. Monning, Chair
                     SB 804 (Corbett) - As Amended:  June 6, 2012

           SENATE VOTE :  22-13
           
          SUBJECT  :  Health care districts: transfers of assets.

           SUMMARY  :   Requires health care districts to include, in an 
          agreement transferring more than 50% of the health care 
          district's assets, the appraised fair market value of any asset 
          transferred to a nonprofit corporation, as defined.  Further 
          requires the appraisal of the fair market value to be performed 
          within the six months preceding the date on which the district 
          approves the transfer agreement.  Specifically,  this bill  :    

          1)Requires health care districts to include, in an agreement 
            transferring more than 50% of the health care district's 
            assets, the appraised fair market value of any asset 
            transferred to a nonprofit corporation.

          2)Requires the fair market value to be appraised by an 
            independent consultant with expertise in methods of appraisal 
            and valuation and in accordance with applicable governmental 
            and industry standards for appraisal and valuation of any 
            asset transfer.

          3)Requires that the appraisal be performed within the six months 
            preceding the date on which the district approves the transfer 
            agreement.

          4)Requires the public to be provided with the following 
            information when the public is asked to approve the transfer 
            by vote:

             a)   Assets proposed to be transferred;
             b)   The appraised fair market value; and,
             c)   The full consideration that the district is to receive 
               in exchange for the transfer.
           
          EXISTING LAW  :

          1)Establishes the Local Health Care District Law which 








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            authorizes communities to form special districts to construct 
            and operate hospitals and other health care facilities to meet 
            local needs.

          2)Authorizes a health care district to transfer, for the benefit 
            of the communities served by the district, any part of its 
            assets of the district to one or more nonprofit corporations 
            to operate and maintain the assets.  Prior to the district 
            transfer, requires the district board to submit a measure to 
            the voters of the district proposing the transfer.

          3)Authorizes a district to transfer, at less than fair market 
            value, any part of the assets of the district to one or more 
            nonprofit corporations to operate and maintain the assets, if 
            the transfer benefits the communities served by the district.  
            Requires that for a transfer of 50% or more of a district's 
            assets to be deemed to benefit a district's communities, a 
            district must:
             a)   Fully discuss the transfer agreement in at least five 
               properly noticed public meetings before the district 
               board's decision to transfer the assets;
             b)   Provide in the transfer agreement that the district must 
               approve all initial board members of the nonprofit 
               corporation and any subsequent board members as may be 
               specified in the transfer agreement;
             c)   Provide in the transfer agreement that specified assets 
               are to be transferred back to the district upon termination 
               of the transfer agreement;
             d)   Commit the nonprofit corporation, in the transfer 
               agreement, to operate and maintain the district's health 
               care facilities and its assets for the benefit of the 
               communities served by the district; and,
             e)   Require, in the transfer agreement, that any funds a 
               corporation receives from the district be used only for 
               specified activities that would further a valid public 
               purpose if undertaken directly by the district.

          4)Requires the district to report to the California Attorney 
            General (AG), within 30 days of any lease of district assets 
            to one or more corporations, the type of transaction and the 
            entity to whom the assets were leased.

           FISCAL EFFECT  :  None

           COMMENTS  :    








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           1)PURPOSE OF THIS BILL  .  According to the author, this bill is 
            intended to provide the public with more information about the 
            value of district assets that are proposed to be sold or 
            transferred to one or more corporations for less than fair 
            market value.  The author argues that unfortunately, in too 
            many cases, these transfer agreements end with assets being 
            transferred out of the district to the benefit of the 
            contracting private corporation and to the detriment of the 
            local community.  The author maintains that of the 85 
            districts that have formed since 1945, almost a third have 
            closed, leased, or sold their hospitals.  Some, according to 
            the author, have declared bankruptcy and many have changed or 
            expanded their historic role as providers of acute care.  This 
            bill, the author asserts, addresses the growing concern that 
            some districts are entering into contracts that reduce the 
            district's assets and financial security.

           2)DISTRICTS  .  Districts were formed under state law to meet 
            local health needs not satisfied by other health care 
            resources or government programs in a given geographical area. 
             Districts formed pursuant to state law are financed by 
            assessments on real and personal property within the district. 
             A 2006 report published by the California HealthCare 
            Foundation found that 85 health care and hospital districts 
            have been formed in California since the first hospital 
            district enabling legislation was passed in 1946.

          Districts operate medical facilities, including hospitals, 
            public health clinics, and skilled nursing facilities.  Some 
            also provide community-based education programs to the 
            residents of their districts.  Given the volatile health care 
            market in recent decades, districts have contemplated service 
            changes, leasing arrangements, and affiliations with both 
            nonprofit and for-profit health care corporations as means or 
            providing health care services to residents.

          Responding to changes in health care delivery, districts explore 
            economic and organizational alternatives, including leasing or 
            selling their assets to nonprofit corporations or even to 
            for-profit companies.  If a district wants to transfer 50% or 
            more of its assets to any corporation, the transfer needs 
            majority-voter approval from the district board.

           3)SUPPORT  .  The California Nurses Association (CNA) writes in 








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            support that this bill gives the public important information 
            about the value of health care district assets that are 
            proposed to be transferred to an outside entity for less than 
            market value.  CNA maintains that this information is crucial 
            because health care district assets are public and are owned 
            by the residents of the health care district.  
                 
            4)PREVIOUS LEGISLATION  .

             a)   SB 134 (Corbett) of 2011, was substantially similar to 
               the provisions of this bill.  SB 134 was amended to delete 
               these provisions in the Assembly.

             b)   SB 1240 (Corbett) of 2010, would have imposed conditions 
               on contracts between districts and other entities to 
               operate one or more health facilities owned by the 
               district.  SB 1240 was vetoed by Governor Arnold 
               Schwarzenegger, who stated that SB 1240 would have limited 
               the discretion of a district when entering into a contract 
               with another operating entity and would have created the 
               unintended consequence of reducing the incentive for such 
               arrangements when hospitals are struggling to remain open.

             c)   SB 1351 (Corbett) of 2008, would have required voter 
               approval before a district can transfer, for the benefit of 
               the communities served by the district and in the absence 
               of adequate consideration, any part of the assets of the 
               district to one or more nonprofit corporations to operate 
               and maintain the assets, as opposed to 50% or more of the 
               district's assets.  SB 1351 would have also expanded the 
               AG's ability to review and comment on proposed transfers 
               and prohibited a district from relinquishing its membership 
               on the board of a nonprofit corporation to which the 
               district has transferred or leased its assets without a 
               vote of the district electorate.  SB 1351 was vetoed by 
               Governor Arnold Schwarzenegger, who stated that he could 
               not support placing additional restrictions on a district, 
               especially when they are elected by, and accountable to, 
               their local community.

             d)   SB 460 (Kelley), Chapter 18, Statutes of 1998, 
               permitted, until 2001, a district to transfer at fair 
               market value its assets to for-profit corporations, as 
               specified.









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             e)   SB 1508 (Figueroa), Chapter 169, Statutes of 2000, 
               extended the authority for districts to transfer or lease 
               assets to a for-profit until January 1, 2006.

             f)   AB 1131 (Torrico), Chapter 194, Statutes of 2005, 
               extends the January 1, 2006 sunset date to 2011, permitting 
               districts to transfer or lease assets to for-profit 
               corporations, as specified.

             g)   SB 1771 (Russell and Kopp), Chapter 1359, Statutes of 
               1992, defines the terms and conditions under which a 
               district may transfer, without adequate consideration, any 
               part of its assets to one or more nonprofit corporations, 
               including that the transfer must be for the benefit of the 
               community served by the district, provide for the transfer 
               back to the district of the assets at the end of the lease, 
               and be approved by a majority of the voters in the district 
               if the transfer is of 50% or more of the district's assets.

           5)DOUBLE REFERRAL  .  This bill is double referred.  Should it 
            pass out of this committee, it will be referred to the 
            Assembly Committee on Local Government.

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          California Nurses Association
           
            Opposition 
           
          None on file.

           Analysis Prepared by  :  Tanya Robinson-Taylor / HEALTH / (916) 
          319-2097